Parks deception stemmed from budget reform

Millions of taxpayer dollars hidden by state parks officials for a decade first piled up unintentionally after a performance-based budgeting program produced accounting errors in the parks department’s books, an Attorney General’s investigation released Friday found.

The investigation began in August after state officials disclosed the parks department obscured $54 million from the state’s fiscal year 2013 budget process. The revelation came at a time when the department had received numerous donations from donors hoping to save 70 parks threatened with closure because of budget cuts.

Investigators determined parks officials intentionally hid only a portion of the original amount — up to $29 million — finding that the rest of the discrepancy was attributable to accounting issues. Since the money was not reported for the state’s budget process, it could not be spent on anything and investigators concluded none of it was misappropriated.

Current and former parks officials told the investigators the funds were kept hidden because supervisors feared they would suffer budget cuts — and embarrassment — if the stash came to light.

“Throughout this period of intentional nondisclosure, some parks employees consistently requested, without success, that their superiors address the issue,” the report said.

The hidden pots of recreation fund money began piling up in 1996, possibly because of the way the department reported corrections to its prior-year financial reports under its new performance-based budgeting program, the report found.

Investigators found the accounting errors were discovered as long ago as 1998, but were not reviewed fully by the department until 2002, when the total being underreported to the budget had reached $29 million. At that time, the money was intentionally put under wraps, according to the report.

The investigators interviewed 40 current and former state employees. One exception was former department director Ruth Coleman, who resigned after the funds were disclosed and denied knowing anything about them.

One of Coleman’s deputies, Michael Harris, was fired when the scandal broke. He was the highest-level official investigators were able to conclude had participated in hiding the funds, and now works for the Department of Environmental Protection, according to The Associated Press.

Investigators did not conclude Coleman knew the funds were hidden, despite the claims of some of those interviewed that they had discussions with her about the secret money. The report said the employees’ claims did not make it clear Coleman knew the funds were intentionally being hidden.

The report suggested Tom Domich, who served as a deputy director from 1987 to 2004, may have been the first to decide to keep the money hidden. The report said Domich refused to acknowledge the claims of two parks officials who told investigators they reported the funds to him and that he “unpersuasively denies all knowledge of the disparity and his role in the deception.”

“Consequently, it also cannot be determined with certainty whether the matter was reported to Ruth Coleman, who became acting director in January 2002 and went on to serve as director until July 2012,” the report said.

The report takes note of a red flag that went ignored. As reported first by The Watchdog, Department of Finance officials were notified of large discrepancies in the state’s 500 special funds by the State Controller’s Office through annual reports that ceased in 2003.

The investigators found those reports caused finance officials to repeatedly ask the parks department to explain the discrepancies. The discrepancies were never explained, and the AG’s investigators were unable to determine why the finance department didn’t investigate further at that time.

Shortly after the hidden funds were disclosed to the public, the Department of Finance reviewed all of its special funds and found an additional $233 million was underreported for the state budget due to accounting errors, but that none of it was intentionally hidden.

One reason for the underreporting is the differences in how funds are accounted for by the finance department and the controller’s office, which use different methodologies. A law signed by Gov. Jerry Brown in response to the scandal requires departments to compare their budget reports and financial reports detailing how much money is in the state’s special funds.